Don't Mess With Taxes

Buffett clarifies his 'tax the rich' stance

What would America do without rich people?

They are our royalty. We love them. We hate them. We all want to be them.

And we think it one day could happen to us, although some folks have some pretty unrealistic views as to how they'll attain their wealth.

So whenever a rich guy talks, we listen.

In the recent tax debate, investing guru Warren Buffet has held our attention.

We sat up when he pointed out that his secretary pays more taxes than he. That's not fair, says Buffett, who then proclaimed that rich people should pay more to the Internal Revenue Service than lower income earners.

Then the president latched onto the Oracle of Omaha's pronouncement. Obama named a proposed millionaires' tax in his deficit/jobs/tax reform plan the Buffett Rule.

Now the ball is back in Buffett's court. And his latest comments are this week's Follow-up Friday.

Buffett caused a bit of a tax and political stir today by seeming to distance himself from Obama's new tax on himself and his fellow millionaires, billionaires and gazillionaires.

In interviews with the top three business networks, Buffet said he didn't have a problem with his named being used by the prez. But Buffett also refused to specifically say which Obama tax proposals of he supports.

The main reason for his hesitancy, said Buffett, was that he's unfamiliar with the details of the president's plan.

But Buffett did reiterate that he's for a higher tax rate on people who "make money with money only."

That is, Buffett is for increasing the tax rate on capital gains, which now top out at 15 percent. Most of his money comes from such investment profits, and that's why he pays lower taxes than his employees.

"What I'm talking about would not apply to someone that made $5 million a year as a baseball player or $10 million a year on media," Buffett said on Fox Business Network. "It would apply only to probably 50,000 people out of 309 million who have huge incomes, pay very low taxes. There should be a policy that applies to people with money who earn lots of money and pay very low rates. If they earn it by normal jobs what I say would not hit them at all."

And although Obama used Buffett's name, the president's proposed Buffett Rule would affect the people the Berkshire Hathaway head wants to exclude. Obama would create a new tax on the wealthy as an ordinary tax rate.

The issue of capital gains were not specifically mentioned in the prez's plan.

However, it does again call for the expiration of the Bush-era tax cuts, of which the lower investment income rates are a part.

You also might find these items of interest:

• Young people like the Buffett Rule
• Warren Buffett may want to pay more taxes, but his company doesn't
• Stephen Colbert explains Obama's tax-the-rich plan

Airline taxes part of Obama deficit plan

I'm getting on a plane today to head to the Financial Blogger Conference in Chicago.

The last time I flew, in July to the IRS Nationwide Tax Forum in Dallas, airline taxes were a hot topic.

Back then, the Federal Aviation Administration's ability to collect airline taxes had lapsed, creating confusion (and hope) that some passengers would get a tax refund.

No such luck.

This time it's new airline taxes that are on the radar.

As part of his jobs/tax reform/deficit reduction plan, Obama is seeking higher fees, aka taxes, on airlines and passengers.

The prez wants to immediately raise the passenger security fee, currently $2.50 for each leg of a trip, to $5 per travel segment.

The fee would rise another 50 cents a year from 2013 through 2017 to $7.50 per travel segment, or $15 round trip.

And the Homeland Security Department would have the authority to raise that charge even more.

Obama's numbers crunchers estimate that boosting passenger security fees will raise $24.9 billion over 10 years. Of that total, $15 billion would go to reduce federal debt.

But wait, there's more.

The White House also is proposing a surcharge of $100 per flight to help pay for air traffic control.

Although the Administration has focused on this fee's application to corporate jets, it also would also apply to regular airline flights. In fact, general aviation would end up providing most of the $11 billion that the surcharge would raise over 10 years.

These taxes are one of the rare times when airlines and passengers are united. Everyone hates the new airline taxes proposal.

Those of us who have to fly, and I say have to since few people any longer really enjoy the experience, are tired of the nickel-and-diming we're subjected to by the airlines. You can bet that the carriers will find a way, and quickly, to pass along any taxes or fees or surcharges or whatever you call them to passengers.

And that new amount would be on top of the $60 in taxes fees that already apply to a typical $300 round-trip ticket, according to the According to the Air Transport Association, the trade group that represents large carriers.

The Regional Airline Association, a group of smaller airlines, says the fees could lead to a loss of flights to smaller cities. "Aviation shouldn't be a piggy bank for every other purpose," says RAA president Roger Cohen.

We fliers know exactly what Cohen is talking about.

You also might find these items of interest:

• Airline taxes and other transportation taxes
  in place for a few more months
• Airline bags fly tax free
• Travelers pay fewer taxes in Florida and California

Minnesota electorate could decide fate of Vikings' proposed stadium with tax vote

The Minnesota Vikings are 0-3 on the field. It looks like they also might lose big at the ballot box.

The NFL team wants a new stadium. Ramsey County has offered to pay about $350 million of the $1 billion retractable roof project, sharing the costs with the team and the state. The county would pay its share with a half-percent increase in sales taxes.

But residents who attended the Ramsey County Charter Commission hearing this week told the panel they don't want to pay the tax. They believe that most of their neighbors agree with them. In fact, they are so sure that they want the matter to be on an upcoming ballot.

When Cindi Aarsvold Nickel told the Commission it should change the county's constitution to require a referendum on taxpayer funding for pro sports stadiums of any kind and the Vikings in particular, she was cheered. That's something the Vikings haven't heard from the stands this season.

If you can't see the above video, check it out on YouTube.

"I'm a stay-at-home mom," said Nickel. "I am married to a third grade teacher. He is in a public school system and is again having another state pay freeze. I get tired of having the gun held to all of our heads saying that we need to do this for them or else they're going to leave. In school this would be called bullying, and it's not to be tolerated."

The Vikings apparently are getting the same public sentiment feedback, since the team doesn't want the Arden Hills stadium issue to go before the electorate.

Time for teams, not fans, to pay: I'm a big sports fan and in particular a fan of a football team that's found innumerable ways to break my heart over the last 15 years. Yes, I'm talking about you Dallas Cowboys.

But it's well past time for rich owners of sports franchise in all leagues to quit asking much poorer fans to foot bills beyond the exorbitant ticket and merchandise prices.

And the Vikings really should know better. Minnesota had a budget meltdown this summer.

Yet the team's principal owner Zygmunt "Zygi" Wilf has the nerve to ask for, even expect, the Vikes to get public money.

Times are changing, Zygi.

Even the team's current home is looking for some payback.

If the Vikings relocate and the Metrodome where they now play is sold to help fund the move, Minneapolis wants its $30 million investment back.

That was the essence of a letter sent last week by Minneapolis Mayor R.T. Rybak and Minneapolis City Council President Barbara Johnson to Gov. Mark Dayton. The governor's office is in negotiations with the team over a stadium package.

My advice: Get the Vikings on a more solid football footing before you go looking for money to build a place for them to play. Nobody (including fans) is inclined to pay for a sub-par product.

But you're running out of time. The Charter Commission is scheduled to hear more testimony in St. Paul on Oct. 11 and then decide whether to ask voters if stadium taxes should be on the ballot.

You also might find these items of interest:

• Who Dat owe IRS? The NFL's Saints
• Giants, Jets face off-field foe: NJ town wants NFL teams
  to pay property taxes
• College football playoff proponents file tax complaint
  against major bowls

Winners, losers in Obama tax, jobs plan

The prez covers a lot of ground in Living Within Our Means and Investing in the Future, his plan for creating jobs and eventually reducing the deficit.

But because the 80-page document also calls for tax increase and new taxes, it doesn't have a chance of being approved as is.

Still, people are curious. So I talked with some tax and financial folks and put together a look for Bankrate at individual taxpayer winners and losers in the Obama plan.

At least it gives us a few more things to argue about as we await deficit reduction action (or lack thereof) from the Congressional super committee by Nov. 23.

You also might find these items of interest:

• How to avoid federal budget catastrophe
• Tax juggling on Capitol Hill
• The political spending chasm

FSAs can help with medical costs

I went to the dentist this week. Thanks to the hubby's workplace insurance coverage, I didn't have to pay the whole bill.

Photo by 123light via iStock

But I had to pay enough that I wished he had signed up for a flexible spending account.

Sometimes called a flexible savings account and usually referred to by tax and HR wonks by the acronym FSA, these workplace accounts allow you to put aside pretax money that you can use to pay expenses not covered by insurance.

FSA advantages -- and downsides -- are this week's Weekly Tax Tip.

Two types of accounts: Companies typically offer their employees two types of spending accounts. A dependent-care FSA allows a worker to set aside money to help pay some of the costs incurred in placing the kids in day care while mom and dad are at work.

With a medical FSA, a worker stashes money to pay for health care costs that aren't covered by the employee's health insurance. This includes co-pays and uninsured treatments such as vision care or chiropractic treatments.

FSA pros: Contributing to an FSA is easy. The money automatically comes out of your pay as a regular payroll deduction.

And, of course, there's the aforementioned tax advantage. Those payroll account deductions are on a pretax basis. That means less of your earnings are subject to income tax withholding.

FSA cons: But there are downsides.

If you don't use all the money in your FSA, you'll lose it.

Recent changes to the accounts, most notably restrictions on purchases of over-the-counter medications, also have made the plans less appealing.

And some folks find the process of submitting claims too time consuming and complicated.

Those are some of the reasons that many workers ignore their company's FSA option.

Granted, no tax break is perfect for everyone. But I know I could have used an FSA this week. And it wasn't the first time I had thought that.

This year we've been getting more bills from doctors than before because the hubby's insurance plan upped the deductible we must meet before its coverage kicks in completely.

So when enrollment season for workplace benefits opens in October, we'll be doing some numbers crunching to see how much money we want to put into a medical FSA to help pay next year's uncovered health care costs.

You also might find these items of interest:

• Final FSA deadline for some is March 15
• Adding adult kids to health care, FSAs
• FSA spending time is here

Tax Court grants innocent spouse relief to gambler's ex-husband

I love it when real life taxes coincide with my tax scribblings.

Take the latest Weekly Tax Tip. It dealt with innocent spouse issues.

And what just happens to pop up on the tax radar a few days later? A U.S. Tax Court ruling granting a husband innocent spouse status because he didn't know the full extent of his wife's gambling winnings.

Leonard Harbin filed a petition with the Tax Court seeking relief from joint and several liability for his and his now ex-wife's taxes. The Internal Revenue Service disagreed, saying that Harbin didn't qualify for innocent spouse relief because he was involved in and participated in a prior hearing on the couple's joint tax filing.

True, acknowledged Harbin. Also true that he prepared and filed joint returns for himself and Bernice Nalls, his former wife, based on discussions with and records kept by Nalls.

But, said Harbin, he did not know or have reason to know that this information was incorrect.

First piece of advice to Harbin: Yes, even though you love your spouse, you need to apply Ronald Reagan's advice to joint tax returns: Trust but verify.

More to the point of the Tax Court case, Harbin said he did not participate meaningfully in the prior tax proceeding because the same attorney represented him and Nalls.

This conflict of interest was exacerbated, said Harbin, because he and Nalls were in the midst of their divorce at the time and the same attorney also was representing them both in the divorce. Harbin said he relied on his wife to provide their attorney with all of the necessary information regarding the gambling activities since she was the one with the personal knowledge and the records.

Second piece of advice to Harbin: Now I'm no attorney, either in the tax or divorce areas, but I do know that even in the most amicable separation situations, it's wise to have your own representation. The same holds true when it comes to tax advisers.

But despite his filing and legal counsel oversights, Harbin got lucky.

When he and Nalls were married, they reported all of her $45,540 in gambling winnings for 1999 and $113,445.50 for 2000. They also zeroed out her 1999 winnings with corresponding gambling losses of $45,540. In 2000, they claimed $108,945.50 in gambling losses.

Harbin reviewed the gambling records Nalls kept and he also discussed with Nalls what he thought were all of gambling winnings and losses when preparing the 1999 and 2000 returns. He didn't know or have reason to know at the time he prepared the couple's joint returns that Nalls' gambling losses were incorrect.

When Harbin subsequently filed a separate tax return, the IRS applied an overpayment credit against unpaid liabilities related to his ex-wife's gambling activities. He then submitted a request for innocent spouse relief, which the IRS denied, saying Harbin knew or had reason to know of his former wife's gambling income.

Ex-spouse gambles on innocent status and wins: Tax Court Judge Diane L. Kroupa disagreed with the IRS. Instead, she found that Harbin had not meaningfully participated in the prior proceedings because Nalls effectively exercised exclusive control in regard to the due taxes since they related to her gambling activities.

Kroupa also noted that the IRS didn't raise the issue of res judicata, i.e., a claim preclusion because, as the Latin says, it is "a matter [already] judged," until two years after Harbin requested relief.

And because Harbin and Nalls shared the same attorney, the conflict meant Harbin wasn't advised at the time of the possibility of seeking innocent spouse relief.

Therefore, ruled  Kroupa, Harbin is not barred from requesting innocent spouse relief. And citing stipulations by Harbin and the IRS, the Tax Court held that he was entitled to the requested tax relief.

You also might find these items of interest:

• New Hampshire eliminates gambling tax
• Deceased Enron exec gets Tax Court victory
• Cat lady's feline foster care $12,000 tax deduction
  slashed by Tax Court

New Jersey governor cancels MTV's Jersey Shore tax credit

It's no surprise that most of New Jersey's lawmakers aren't Jersey Shore fans. They're not in its target demographic.

That also explains in part why N.J. Gov. Chris Christie nixed a controversial $420,000 state tax credit for which the show had applied.

But only partly. In addition to its inane and often offensive content, Jersey Shore wasn't doing New Jersey any favors.

Some New Jersey assembly members had protested the state paying for a program that reflects badly on the Garden State.

The tax break dubbed the "Snooki subsidy" would have helped pay for the first season of the hit MTV program. Despite the show's name, those episodes in 2009 were the only ones that were actually filmed within the state's borders.

Christie initially balked at vetoing the tax credit, but obviously changed his mind. He made the no-tax-break decision official on Monday, Sept. 26.

Perhaps he finally sat down and watched the show.

In his letter explaining the veto decision to the N.J. Economic Development Authority chief, Christie explained:

"In this difficult fiscal climate, the taxpayers of New Jersey should not be forced to subsidize projects such as Jersey Shore. We must ensure that our limited taxpayer dollars are spent on program and projects that best benefit the State of New Jersey. I have no interest in policing the content of such projects; however, as Chief Executive I am duty-bound to ensure that taxpayers are not footing a$420,000 bill for for a project which does nothing more than perpetuate misconceptions about the State and its citizens."

He did sit through an episode.

Christie, no fan of the state's Film Tax Credit Transfer Program in general, also took several swipes at the tax break itself.

He cited the film and television tax credit's "questionable returns to taxpayers" and called the MTV program emblematic of "the potential for wasteful spending inherent in the implementation" of the state film tax break.

Christie did, however, let tax credits for other productions go forward, including live wrestling shows presented as Hell in a cell at Newark and Chlorine, a movie starring Kyra Sedgwick.

And don't worry Jersey Shore fans. MTV says the loss of the tax credit won't have any effect on the show.

You also might find these items of interest:

• More states balking at subsidizing outrageous films
• State film and television tax credits fading
• Lights, cameras, state tax credits!

Young people like the Buffett Rule

A new poll of American youth finds that they tend to agree with elder financial guru Warren Buffett that richer folks should pay higher taxes.

OK, the poll is very unscientific. Our Time, a Washington, D.C., nonprofit that's "standing up for all of us under 30," conducted it via Facebook. But really, how else do you connect with these kids today?

"There are enormously wealthy people in this country who can afford a higher tax rate, and the feedback we received from our members certainly supports that," Our Time co-founder and president Matthew Segal said in a news release announcing the poll. "Our membership is a group of Americans who have grown up watching the expanding divide between the mega rich and those struggling to pay their bills."

But apparently watching and struggling didn't quite translate to participating for the group's Facebook constituency.

It seems that the knock on kids about not voting in U.S. elections applied to the poll, too.

Our Time's Facebook page is liked by 5,142 people, but when I checked it earlier this afternoon, only 157 had voted in the poll on Obama's creation of the Buffett Rule for a higher tax rate on millionaires.

Still, of those who did vote, the majority did indeed think Buffett and the prez are on the correct tax track with a proposed millionaires' tax.

The screen shot below doesn't reveal the exact number of votes (you have to go to the page an click for details), but you can see from the shading that "I support this strongly" was well ahead. The actual number who strongly support the Buffett Rule was 122.

Sixteen voters opted for a 15 percent flat tax, 14 opposed the millionaires tax, three weren't sure and two took issue with the fact that the Oracle of Omaha's earnings come from investment income over which he has bit more tax control.

And while they might not have voted en masse in the poll, some Our Time Facebook posters did share their thoughts about how younger Americans are affected by and dealing with this economy:

"I would like to think we could change things enough that I could actually get my social security check when I turn 65. 39 years isn't all that long in the grand scheme of things."

"Our generation has to get 'mad as hell' about how our country is being run and realize that it is US who are going to need to do something about it."

"If the rich are the only ones taxed, they can just get up and leave. They're not stuck like the rest of us...."

"There is a difference between rich and MEGA rich. $1mil/year and $100+mil/year shouldn't be taxed the same rate. Individuals making a few million per year are typically small business owners who are, generally, innovating new ideas and businesses. Individuals making $100mil/year are major corporate executives and investors who are marauding swindlers that elude any taxation and deprive the middle class of income increases. I agree with a tax reform, but it cant be this generalized. This only shows the laziness and disconnect from reality because they (politicians) don't understand the difference between $1 million per year and $100 million per year."

I was young once, so I'll cut the Our Time non-voters some slack. They've got other things to worry about, like finding jobs so they can make some taxable wages that they eventually can invest.

You also might find these items of interest:

• Tax breaks for minimum wage workers
• Those wacky rich folk and their taxes
• Stephen Colbert explains Obama's tax-the-rich plan

Amazon gets California tax reprieve

Amazon has been battling with, and bribing, states across the country in an effort to maintain its tax-free online sales.

From South Carolina to Texas and now California, the onlline retail giant has convinced state lawmakers to waive collection, at least temporarily, of sales taxes on products Amazon sends to customers in those states.

After California took a hard line this summer and enacted a law to collect its 7.25 percent sales tax from all online retailers, Amazon ramped up the no-tax fight.

It severed its association with all of its affiliates. Then it launched an effort to put the online sales tax law to Golden State voters.

Now, that ballot initiative drive is on hold and tens of thousands of Amazon affiliates will start making money again thanks to the enactment of a law repealing the online sales tax. Amazon also plans to build more California distribution centers, putting more state residents to work.

The California Assembly bill that led to this unexpected sales tax truce, A.B. 155, is this week's By the Numbers figure.

With Gov. Jerry Brown's signing of the bill into law on Friday, Sept. 23, Amazon also essentially acknowledged that it is fighting a losing tax battle.

Sure, California's coffers will be short the estimated $200 million it won't collect between now and Sept. 15, 2012.

But after that date, Amazon and other online retailers will start collecting California sales taxes … unless the federal government steps in.

Part of the new deal calls for California and Amazon to work together for a national standard on taxing online sales.

Such a proposal, the Main Street Fairness Act, has been introduced in the U.S. Senate by Illinois Democrat Dick Durbin. It would allow states that abide by the Streamlined Sales and Use Tax Agreement to force Internet sellers to collect participating states' sales taxes.

Amazon has always supported a federal solution to the state sales tax issue. The Seattle-based company has joined traditional retailers such as Wal-Mart, Best Buy and Home Depot in supporting the national legislation.

The Alliance for Main Street Fairness and Retail Industry Leaders Association both applauded the California/Amazon law a step toward making online sellers "play by the same rules as other retailers."

The reality, however, is that Durbin's bill faces slim prospects on Capitol Hill, especially in the adamantly anti-tax House that will still be in Republican control this time next year.

So while California online buyers get their sales tax payment reprieve, look for other states to continue to duke it out with online retailers and likely cut their own deals with Amazon.

You also might find these items of interest:

• Are Amazon taxes costing states money?
• Sales tax collection on online purchases:
  legislation to ease it, lawsuit to stop it
• State tax collectors ramp up enforcement
• Drop a dime on Amazon

Last week at my other tax blog: Innocent tax spouses; Obama tax plan

Talk is important when it comes to taxes, in both personal return filing and on Capitol Hill where lawmakers are looking for ways to reduce the federal deficit.

Both situations were the topics of posts last week at my other tax blog.

On the personal level, when a couple files a joint tax return, each is equally responsible for any tax liability. If one spouse takes the lead in doing taxes -- in the hubby's and my marriage, that's me; you really didn't expect otherwise, did you? -- the other partner needs to check out the Form 1040 before signing and sending it off to the Internal Revenue Service.

Too many spouses, however, find themselves in tough tax situations because of a husband's or wife's mistakes, intentional or accidental, on returns. Those folks might be eligible for innocent spouse relief.

On the national tax policy level, talk also is crucial.

Unfortunately, members of Congress and the president seem to be talking at each other instead of with each other about the role of taxes in trimming America's debt.

Obama's recent tax reform and deficit reduction proposals are getting a lot of media attention, but I'm dubious as to how much serious consideration the ideas will get as lawmakers work toward the Nov. 23 deficit cutting plan deadline.

You can check out new posts, usually each Tuesday and Thursday (although last week it was Tuesday and Wednesday), at my Bankrate Taxes Blog.

And if you happen to miss them there, you can find a wrap-up here each Saturday.

You also might find these items of interest:

• Avoiding federal budget catastrophe
• Is it time for tax reform?
• Stephen Colbert explains Obama's tax-the-rich plan